China shares fall despite central bank action

The PBOC said it will cut for most lenders the amount of cash set aside as reserves from Oct. 15

Melba Vasquez
|
10 October, 2018, 17:45

The yuan was also down Monday as expectations of more easing measures plus surging USA bond yields exerted downward pressure on the Chinese currency.

The decision is meant to "further encourage the stable development of the real economy, optimise the liquidity structure of commercial banks and financial markets, lower financing costs, and to continue increasing the financial systems' efforts to support small businesses, private enterprise and innovation", the People's Bank of Chinasaid in a statement.

"There's an acute shortage of confidence in the market".

"The export tax rebate is the most effective way to counter the negative impact of trade war on Chinese exporters to stabilize the job market".

The blue-chip CSI 300 index opened 2.3 percent lower and at midday was down 3.6 percent, with the Shanghai Composite shedding 3.0 percent at the end of the morning session. Co, Kweichow Moutai Co and Hangzhou Hikvision Digital Technology Co - old favourites that jumped at least 97 per cent previous year - were the most sold by overseas traders on Monday. Last week, Hong Kong's Hang Seng slumped 4.4 per cent as investors anxious about the escalating trade row.

The losses in China also came despite a cut in the amount of cash the country's commercial banks must keep in reserve, which its central bank says will pump more than $100 billion into financial markets.

Mr. Pence intensified Washington's pressure campaign against Beijing on Thursday by accusing China of "malign" efforts to undermine U.S. President Donald Trump ahead of next month's congressional elections and reckless military actions in the South China Sea.

Telecoms equipment maker ZTE led tech shares downward on Monday, falling 8.14% to 16.81 yuan after a Bloomberg News report last week said China had inserted special microchips into computer goods exported to the United States to steal technology secrets.

China's IT sector fell sharply today, tumbling over 3.4 per cent in early trading. Shenzhen-listed shares of ZTE was down over 8 per cent at close. This marks the biggest monthly drop since February.

On the same day, the above-mentioned banks will use the funds released by the RRR cut to repay the medium-term loan facilities of the central bank where they borrowed.

The PBOC would "maintain reasonably ample liquidity to drive the reasonable growth of monetary credit and social financing scale", it said. "Liquidity is not the issue". Xie Yaxuan, chief economist at China Merchants Securities said in a note that the timing of the announcement was a deliberate move by Beijing "to offset the shock from declines in global stock and bond markets to the domestic economy".

"Moreover, there is still room for further RRR cuts when necessary, though the chance for an interest rate cut is limited given the continued Fed rate hiking cycle, in our view."On Monday, the spread between Chinese and USA 10-year Treasury bonds was 58.1 basis points according to Eikon data, compared with 150 basis points at the end of 2017".

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